Insider Trading and Corporate Governance: The Case of Germany

We analyse transactions by corporate insiders in Germany. We find that insider trades are associated with significant abnormal returns. Insider trades that occur prior to an earnings announcement have a larger impact on prices. This result provides a rationale for the UK regulation that prohibits insiders from trading prior to earnings announcements. Both the ownership structure and the accounting standards used by the firm affect the magnitude of the price reaction. The position of the insider within the firm has no effect, which is inconsistent with the informational hierarchy hypothesis.     

Insider Trading and Corporate Information Transparency

Our study examines the relation between insider trading and corporate information transparency. We find a negative relation between firms’ information transparency and the economic significance of insider trading, including the amount of insider purchase and sale and the profitability of insider transactions. We also find a negative relation between information transparency and stock price reaction to news of insider trading, which suggests that increases in information transparency preempt insiders’ private information. Our study provides evidence consistent with firms’ transparency-enhancing activities decreasing information asymmetry between insiders and investors by revealing insiders’ private information to investors in a timely manner.     

Stock Prices and the Secondary Dissemination of Information: The Wall Street Journal's "Insider Trading Spotlight"Column

In this paper we test whether a secondary dissemination of information affects stock prices. We examine stock price reactions to the publication of the “Insider Trading Spotlight”(ITS) column in the Wall Street Journal (WSJ). Since insider trades reported in the ITS column are initially disclosed to the public when insiders’ reports are filed with the Securities and Exchange Commission (SEC), the information contained in the WSJ is a secondary dissemination. Around the WSJ publication day, we find significant abnormal stock performance accompanied by a significant increase in trading volume. Our evidence suggests that a secondary dissemination of information can affect stock prices if the initial public disclosure attracts only limited attention by the market. In addition, we document how insider trading information is conveyed to the market.     

上市公司内部人亲属股票交易行为研究

中国的《证券法》等法律法规禁止内部人短线交易,并设置了内部人禁止股票买卖的敏感期,但内部人亲属不受此限制。本文对深圳证券交易所2007年5月至2010年5月的内部人亲属股票交易数据分析发现:(1)上市公司的内部人亲属对内部人任职企业的股票交易次数已经远远多于内部人自身的交易次数;(2)内部人亲属的交易存在很多的短线交易行为与敏感期交易行为;(3)内部人亲属股票交易整体而言能够获得超额收益;(4)短线交易与敏感期交易有助于内部人亲属获得超额收益;(5)董事长或总经理的亲属获得的收益比其他内部人亲属更高。据此,本文认为证券交易监管机构需要关注内部人亲属股票交易行为,尤其警惕内部人亲属交易可能成为规避内部人交易管制的替代方式。     

The power of the pen and executive compensation

We examine the press’ role in monitoring and influencing executive compensation practice using more than 11,000 press articles about CEO compensation from 1994 to 2002. Negative press coverage is more strongly related to excess annual pay than to raw annual pay, suggesting a sophisticated approach by the media in selecting CEOs to cover. However, negative coverage is also greater for CEOs with more option exercises, suggesting the press engages in some degree of “sensationalism.” We find little evidence that firms respond to negative press coverage by decreasing excess CEO compensation or increasing CEO turnover.     

我国证券市场内幕交易的法学实证分析——来自31起内幕交易成案的统计分析

内幕交易是证券法学界炙手可热、经久不衰的热门课题,关于内幕交易的各种概念、学说、理论被学术界翻炒得烂熟,解剖个案麻雀的精彩论著也不鲜见,但受制于案例、资料和相关数据的局限,少有学者从实证角度,系统性地研究我国内幕交易成案的总体特征。本文力图在传统证券法学研究途径之外,独辟蹊径,通过运用统计、数量分析等经济学科工具,对证券市场成立以来查处的全部31起内幕交易案件加以实证分析,以期得出我国内幕交易案件的发案特征与规律,为打击和防范内幕交易违法行为,修订内幕交易法制提供数据支持和实证参考。     

Reputation penalties for poor monitoring of executive pay: Evidence from option backdating

We study whether outside directors are held accountable for poor monitoring of executive compensation by examining the reputation penalties to directors of firms involved in the option backdating (BD) scandal of 2006–2007. We find that, at firms involved in BD, significant penalties accrued to compensation committee members (particularly those who served during the BD period) both in terms of votes withheld when up for election and in terms of turnover, especially in more severe cases of BD. However, directors of BD firms did not suffer similar penalties at non-BD firms, raising the question of whether reputation penalties for poor oversight of executive pay are large enough to affect the ex ante incentives of directors.     

Mutual funds as monitors: Evidence from mutual fund voting

We address how mutual funds vote on shareholder proposals and identify factors that help determine support of wealth-increasing shareholder proposals. We examine 213,579 voting decisions made by 1799 mutual funds from 94 fund families for 1047 shareholder proposals voted on between July 2003 and June 2005. In an analysis of voting across funds within the same fund family, we find significant divergence in voting within families, emphasizing the importance of focusing on voting by individual funds. We also find that, in general, mutual funds vote more affirmatively for potentially wealth-increasing proposals and funds' voting approval rates for these beneficial resolutions are significantly higher than those of other investors. Our results suggest that funds tend to support proposals targeting firms with weaker governance. We also find that funds with lower turnover ratios and social funds are more likely to support shareholder proposals. Finally, fund voting approval rates significantly impact whether a proposal passes and whether one is implemented.     

内幕交易罪的司法困境及出路研究

近年来内幕交易案件频发,无论是"杭萧钢构案",还是"上海祖龙内幕交易案"都在司法认定方面引起了理论和实务界的较大争议。这充分表明,在认定内幕交易罪的司法实践中仍然存在很多待解的难题。只有在对这些司法难题进行深入剖析的基础上,重构内幕信息的认定标准、改善内幕交易行为的取证路径、强化内幕交易的执法力度、完善机制设计,才能破解司法难题,维护证券市场的公平公正,保障证券法律法规得以遵守和执行。     

Accountability of independent directors: Evidence from firms subject to securities litigation

We examine which independent directors are held accountable when investors sue firms for financial and disclosure-related fraud. Investors can name independent directors as defendants in lawsuits, and they can vote against their reelection to express displeasure over the directors’ ineffectiveness at monitoring managers. In a sample of securities class action lawsuits from 1996 to 2010, about 11% of independent directors are named as defendants. The likelihood of being named is greater for audit committee members and directors who sell stock during the class period. Named directors receive more negative recommendations from Institutional Shareholder Services, a proxy advisory firm, and significantly more negative votes from shareholders than directors in a benchmark sample. They are also more likely than other independent directors to leave sued firms. Overall, shareholders use litigation along with director elections and director retention to hold some independent directors more accountable than others when firms experience financial fraud.     

Information Production, Insider Trading, and the Role of Managerial Compensation

We analyze the information production decision of a manager who can trade on this information and whose compensation is increasing in the stock price. The amount of information produced increases with the stock's volatility and liquidity and decreases with the manager's pay-performance sensitivity. Insider trading regulations that symmetrically inhibit the manager's ability to buy and sell stock cause her to produce less information. But asymmetric insider trading regulations like the short sales prohibition have an ambiguous effect inducing her to produce more or less information depending on her pay-performance sensitivity. This contradicts the standard argument made by opponents of insider trading regulations that such regulations always reduce information production.     

The Effect of Family Control on Firm Value and Performance: Evidence from Continental Europe

We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. Although family‐controlled corporations exhibit larger separation between control and cash‐flow rights, our results do not support the hypothesis that family control hampers firm performance. Valuation and operating performance are significantly higher in founder‐controlled corporations and in corporations controlled by descendants who sit on the board as non‐executive directors. When a descendant takes the position of CEO, family‐controlled companies are not statistically distinguishable from non‐family firms in terms of valuation and performance.     

Earnings Management in IPO Lockup and Insider Trading: Evidence from Taiwan

This paper examines the hypothesis that the timing of lockup expiration is crucial to earnings management (EM) behavior in the period after an initial public offering (IPO). Taiwan's unique two-stage lockup regulations make the Taiwanese sample an excellent candidate for examining this hypothesis. Three main results are reached. First, we find positive discretionary accruals (DAs) from the IPO quarter to the quarter after the expiration of the first-stage lockup. The DA in the quarter of the second-stage lockup expiration is significantly positive. The evidence shows that the lockup provision is key in the findings of significant EM in the IPO year and the following year. We also find a positive association between DAs in first-stage lockups and subsequent insider selling activity, indicating that insiders' selling after lockup expiration accounts for EM in the lockup period. Third, the extent of EM in first-stage lockup is negatively related to that around the IPO, consistent with the reversal nature of DAs.     

Corporate Governance and Asset Sales: The Effect of Internal and External Control Mechanisms

We investigate firms that sell assets to determine whether corporate governance mechanisms are effective at controlling agency problems. Our evidence shows that these firms have lower managerial ownership and are more likely to make unrelated acquisitions, suggesting weak internal controls. Analysis of insider trading activity shows that, on average, net buying increases before the asset sale and shareholders benefit more when this occurs. Results suggest that how managers reach a given level of ownership provides more information about incentive alignment than just the level of ownership. Our results also highlight the dynamic nature of corporate restructuring as firms acquire and then sell assets.     

Why do corporate managers misstate financial statements? The role of option compensation and other factors

We investigate the incentives that led to the rash of restated financial statements at the end of the 1990s market bubble. We find that the likelihood of a misstated financial statement increases greatly when the CEO has very sizable holdings of in-the-money stock options. Misstatements are also more likely for firms that are constrained by an interest-coverage debt covenant, that raise new debt or equity capital, or that have a CEO who serves as board chair. Our results indicate that agency costs increased [Jensen, M.C., 2005a, Agency costs of overvalued equity. Financial Management 34, 5–19] as substantially overvalued equity caused managers to take actions to support the stock price.     

The role of state and foreign owners in corporate risk-taking: Evidence from privatization

Using a unique database of 381 newly privatized firms from 57 countries, we investigate the impact of shareholders' identity on corporate risk-taking behavior. We find strong and robust evidence that state (foreign) ownership is negatively (positively) related to corporate risk-taking. Moreover, we find that high risk-taking by foreign owners depends on the strength of country-level governance institutions. Our results suggest that relinquishment of government control, openness to foreign investment, and improvement of country-level governance institutions are key determining factors of corporate risk-taking in newly privatized firms.     

CEO pay incentives and risk-taking: Evidence from bank acquisitions

We analyze how the structure of executive compensation affects the risk choices made by bank CEOs. For a sample of acquiring U.S. banks, we employ the Merton distance to default model to show that CEOs with higher pay-risk sensitivity engage in risk-inducing mergers. Our findings are driven by two types of acquisitions: acquisitions completed during the last decade (after bank deregulation had expanded banks' risk-taking opportunities) and acquisitions completed by the largest banks in our sample (where shareholders benefit from ‘too big to fail’ support by regulators and gain most from shifting risk to other stakeholders). Our results control for CEO pay-performance sensitivity and offer evidence consistent with a causal link between financial stability and the risk-taking incentives embedded in the executive compensation contracts at banks.     

Corporate Governance and Firm Survival

We explore how various aspects of corporate governance influence the likelihood of a public corporation surviving as a separate public entity, after addressing potential endogeneity that arises from competing corporate exit outcomes: acquisitions, going‐private transactions, and bankruptcies. We find that some corporate governance features are more important determinants of the form of a firm's exit than many economic factors that have figured prominently in prior research. We also find evidence that outsider‐dominated boards and lower restrictions on internal governance play major roles in the way firms exit public markets, particularly when a firm's industry suffers a negative shock. Overall, our results suggest that failure to recognize competing risks produces biased estimates, resulting in faulty inferences.     

If It's Good for the Firm,It's Good for Me: Insider Trading and Repurchases Motivated by Undervaluation

My findings suggest that information inherent in insider trading can be used to identify undervalued repurchasing firms. I examine the relation between insider trading and the performance of open market repurchase (OMR) firms. I show that firms with high net insider buying prior to OMR announcements not only earn abnormal stock returns in both the short‐ and long‐run, but also exhibit better operating performance. Overall, the evidence is consistent with insiders timing their trades prior to OMR announcements.     

The Impact of Corporate Governance on Executive Compensation

This paper examines the relationship between the compensation of the top five executives at a set of over 400 publicly listed Canadian firms and various internal and external corporate governance‐related factors. The media is full of stories suggesting a relationship between large executive compensation packages and failures in governance at various levels within organisations, but there exists little formal analysis of many of these relationships. Our analysis provides empirical evidence supporting some of these assertions, refuting others and documenting new relationships. We find that variances in internal governance related to differences across firms in the characteristics of the CEO, compensation committee and board of directors do influence both the level and composition of executive compensation, especially for the CEO. Considering external measures of corporate governance, we find that different types of shareholders and competitive environments impact executive compensation. We do not find that either the internal or external governance characteristics dominate.